THERE GOES CHINA AND HERE WE SIT BICKERING

The China Greentech Report 2009 Renewable Enerrgy Chapter Update
January 6, 2010 (China Greentech Initiative)

SUMMARY
It is clear the present Chinese leaders intend to solve their nation's energy and pollution problems while at the same time strengthening its economy by developing their nation's abundant New Energy assets.

What the U.S. will do with its New Energy assets remains to be determined. They are the subject of an all-too-familiar partisan bickering and political backstabbing between the frightened forces of yesterday and the far-seeing forces of tomorrow that is the essence of this strange but wonderful constitutionally-based representative democracy.

Some of the provisions the U.S. New Energy industries urgently need may make it into the upcoming jobs bill, a piece of legislation Senators and Representatives from either side of the aisle will be hard-pressed to oppose.

Meanwhile, the command authority of China's leadership is unhesitating. They obviously agree with President Obama that the economy that masters New Energy will be the master of the world's economy in this century.

EVERYTHING ANYBODY KNOWS ABOUT CHINA NEW ENERGY, posted here in September, was an ambitious attempt to hit the highlights of The China Greentech Report 2009, a remarkably comprehensive look at China’s New Energy and Energy Efficiency sectors.

A new, just-released set of chapters update the topics of Cleaner Conventional Energy, Electric Power Infrastructure, Green Building, Cleaner Transportation, Cleaner Industry and Clean Water as well as Renewable Energy. They describe present market factors and what is coming in New Energy in China.

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The Renewable Energy chapter mentions geothermal and hydrokinetics in passing but focuses in great detail on the solar energies, wind power and the bioenergies in China.

It begins by describing the Chinese New Energy market. As might be expected, it is a description of an emerging, industrializing economy with an enormous appetite for energy. Electricity consumption grew more than five times over from 1990
to 2007. Because electricity comes largely from coal in China, power demand has created enormous air and water pollution problems.

At the same time, China has become the world’s second biggest oil consumer and, like the U.S., lacks domestic resources to meet demand. Like the U.S., there are rising concerns about reliance on imports and national security.

Like the U.S., China is blessed with great New Energy assets. Two-thirds of China’s land area gets more sun than world solar output leaders like Germany and Japan. China’s wind is adequate to generate electricity equal to its current total installed electricity generating capacity. In 2006, China had bioenergy resources equal to 300 million tons of coal equivalent (MTCE). That is expected to double by 2020 and triple by 2030.

The paper details a set of 35 New Energy solutions in solar, wind and bioenergy. Some are being implemented already and another set will be implemented as they emerge and transition from trial to mature technologies.

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Solar solutions are divided into 3 areas: (1) Photovoltaic, (2) Concentrating and (3) Water Heaters. Wind Power is divided into 4 areas: (1) Turbines, (2) Development, (3) Maintenance and (4) Energy Storage. Bioenergy has 3 solution areas: (1) Electricity, (2) Heat and (3) Fuels.

The solutions were compared in terms of 2 key criteria, (1) environmental impact potential and (2) overall commercial potential. They were also considered according to whether they could be effective in the short term (this year), medium term (1-to-5 years) or long term (5-to-10 years).

New Energy solutions score high for environmental impact but there are differences. Some bioenergies, for instance, have greater greenhouse gas emissions (GhGs) than others, and some may be no better than fossil fuels.

The best commercial solutions in China are (1) solar water heaters, (2) wind energy storage solutions and (3) biofuels – at 10 years out. Wind is far ahead of bioenergy or solar as a short term solution though they both beat wind in the medium and long term because they have larger potential markets.

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Solar photovoltaic solutions are a variety of competing solar cell technologies. Concentrated Solar Power (CSP) solutions are a variety of competing methods of concentrating the sun's heat. The solar water heater solution (SWH) system absorbs the sun’s heat in water and holds it in a water tank until it is needed.

The basic wind power solution is the conversion of the wind’s energy into mechanical energy that then is used to generate electricity.

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In service to its burgeoning wind industry, China is developing skill at wind project siting, resource assessment, turbine quality control and maintenance. It is moving toward superior turbine electrical control systems, improving the technology in a turbine that converts mechanical energy to electricity and developing standardized operating procedures in the factories and in the field. It is also orking in (1) battery storage solutions, (2) Compressed Air Energy Storage (CAES) solutions and (3) Pumped Hydro Storage for its wind resources.

In bioenergy, China is working to improve electricity generation through the conversion of biomass to gas. This can be done as part of a conventional power plant (co-firing) or as the central energy source of a power plant. It can also be done as a form of distributed generation, either at a community level (Civil Heat) or at a conventional power plant (Industrial Heat).

One of the most interesting parts of the new New Energy chapter is its outline of the key challenges facing China’s 3 major sources of New Energy. For each energy source, Market, Technology, Financing and Regulatory challenges are detailed.

The New Energy chapter also includes a discussion of New Energy opportunities emerging in China. For each of the 3 major New Energies, it details opportunities for (1) solution adopters, (2) solution providers, (3) financial investors, (4) government regulators, and (5) other stakeholders.

The chapter concludes with a list of the opportunities in China’s 3 biggest and fastest growing New Energies.

Sources and methods of the Greentech Initiative are detailed in the September post and at greater length on the report’s website.

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COMMENTARY
The Renewable Energy chapter begins with definitions of its 3 primary topics:

Solar Energy is defined as “the conversion of the energy from the sun into thermal heat or electricity…” It includes photovoltaic (PV) cells that convert the sun’s light into electricity directly and solar power plants that concentrate the sun’s heat, route it to boil water and used the steam to drive a turbine. The definition also includes the direct use of the sun’s heat for hot water in solar water heater (SWH) systems.

Wind Power is defined as the conversion of the force of blowing wind into the mechanical turning of a turbine and the use of that mechanical energy to generate electricity. This includes huge onshore and offshore turbines in sprawling wind proects and small turbines at businesses and residences.

Bioenergy is the energy extracted from any kind of organic matter (recently living organisms or their metabolic byproducts) called biomass (straw and crop residues, energy crops such as sweet sorghum, jatropha and rapeseed, and waste). Bioenergy output is in 4 forms: bioelectricity (from burning the gas produced by the decay of biomass to drive a turbine), bioheat (from the heat given off in decay or when the gas is burned), biofuels (when biomass gases are refined to liquid or gas fuels) and co-products.

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Highlights of the introduction to Solar Energy in China:

(1) China is the world leader in solar PV materials and SWH production capacity and
and ambitious government targets will capture the barely tapped domestic market to sustain China’s lead.
(2) The still high cost of solar cells and the still relatively low conversion efficiency define the limits of the solar industry in China (and worldwide).
(3) China anticipates grid parity for solar PV in 2-to-8 years.
(4) Solar manufacturing creates GhGs and toxic byproducts but using the almost infinitely abundant clean resource remains appealing.
(5) Two-thirds of China gets more than 2,200 radiation hours per year of sun and there are solar resources in excess of 500 KJ/cm2 per year across 70% of the country.
(6) In 2006, China had ~150,000 jobs in solar PV and ~600,000 jobs in SWHs (and its solar industries have grown enormously since then).
(7) In 2007, the SWH sector had sales of 32 billion yuan (US$470 million) in 2007.
(8) Combined solar PV and SWH potential could supply 0.8% of China’s total energy by 2020, up from 0.01% in 2006.
(9) China leads the world in solar PV production capacity and produced 1,088 MWp (megawatt peak) in 2007. That was ~27.2% of world solar PV production. 90+% of China’s solar PV cells and modules were exported and its domestic market was only 4% of global PV installations. Government programs are aimed at boosting domestic demand to 20 gigawatts by 2020.
(10) China leads the world in production and installation of SWHs.
(11) China lags the U.S. and Spain in solar power plant development but is getting involved.
(12) The recent drop in silicon price revealed weaknesses in China’s solar industry. Because they are so overly dependent on the manufacturing part of the solar business, the drop in international demand for silicon panels left them hamstrung. Development of domestic markets is the solution they are aiming for.
(13) To develop its domestic market, the China solar industry must improve its skills downstream in the value chain (solar forecasting, planning, installing and maintaining solar arrays).

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Highlights of the introduction to Wind Power in China:

(1) China’s wind industry is one of the fastest growing in the world. It is supported by a lot of wind and strong government policies. It reached its 2010 targets in 2009. It is expected to pass its earlier 2020 target of 30 gigawatts in 2012. So the National Development and Reform Commission (NDRC) revised the 2020 target to 100 gigawatts.
(2) China was 5th in the world in installed wind capacity in 2008 and moved to 3rd in 2009. It is either 1st or 2nd in new capacity yet gets only 0.8% of its electricity from wind (which provides 2% worldwide).
(3) Because the Chinese government sees the potential, policies and incentives strongly support the domestic wind equipment manufacturing industry and wind project development – by Chinese companies.
(4) Because the government has somewhat shut out more advanced foreign companies, the domestic industry is still developing and learning. It is improving quality, technologies, financial incentives and grid connectivity. But the potential, it is agreed by a wide range of observers, is unquestionably there.
(5) The abundance of the free asset and its emissions-free nature suggest wind could even challenge coal for dominance in China’s electricity mix by 2020 if emissions restraints tighten.
(6) The wind industry in China employs ~25% more people than coal on a per megawatt-hour basis.
(7) China’s wind power industry doubled its total generating capacity in 2009 for the 4th year in a row.
(8) It also built its first offshore wind turbines, something the U.S. wind power industry has yet to do.
(9) Most observers expect a shakeout of major wind industry players but they also expect the winners in China to emerge as dominant global wind industry forces.
(10) State-owned enterprises (SOEs) retain inappropriate, industry-skewing advantages and own 88% of the market.
(11) Though China was the 2nd-biggest buyer of wind turbines in the world in 2008, at least 30% of them are unused for lack of grid connection. This is a problem that especially plagues foreign-built wind projects in China and is a way the government helps keep China’s wind market China’s.

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Highlights of the introduction to Bioenergy in China:
(1) There is enormous growth potential for biomass resources in China. Remaining to be developed are: ~3.7 million metric tons of agriculture waste, 1.2 billion metric tons of forestry residue and 150 million metric tons of municipal solid waste (MSW).
(2) China’s 2006 total of 300 million tons of coal equivalent (MTCE) of biomass supply is expected to grow at 4% compound annual growth rate (CAGR) over the next 20 years.
(3) The government intends to double the 2006 bioenergy generation by 2010 and increase it 6 times over by 2020 but the government’s aggressive ambitions have resulted in the market being controlled by SOEs.
(4) The government is ambitious for bioenergy because it offers millions of rural jobs and new rural income streams for hundreds of millions of poor farmers. It could be worth as much as 100 billion yuan per year.
(5) Bioenergy would relieve some of China’s burgeoning need for oil and oil products and thereby ease national security concerns.
(6) Bioenergy would be a marginal improvement on coal as a source of electricity generation.
(7) Bioenergy generation was 12 MTCE in 2006, mostly as biofuels, electricity and bio-gas from biomass. The government wants at least 24 MCTE by 2010 and as much as 168 MCTE by 2020.
(8) The chief impediment to growth is the upfront cost of owning the feed source, especially when ag crops must be changed to bioenergy crops.
(9) “Costly wastes” have been transformed into expensive commodities (300 yuan/metric ton).
(10) Seasonal and storage constraints as well as constraints on securing and storing continuous feedstock supplies must be resolved.
(11) More efficient and cost effective technologies must be developed.
(12) China still needs national standards and transparent market data for biomass.

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One of the most interesting parts of the new New Energy chapter is its outline of the key challenges facing China’s 3 major sources of New Energy. For each energy source, Market, Technology, Financing and Regulatory challenges are detailed.

The key market challenges for solar energy are its potential use of fossil fuels in manufacturing which increases its GhG footprint, problems with recycling potentially toxic materials used to make solar cells and the high cost of solar energy.

Technology challenges include the technological improvements’ slow transition from the lab to the field and quality control concerns for the massive numbers of products needed to make a dent in electricity demand.

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Financing of solar energy is challenged in China because the government limits foreign investment and controls a very narrow set of financing vehicles.

In China, regulatory hurdles are always a problem. Inadequate brand protection discourages foreign participants, government policies do not create incentives or protections and there is little enforcement of what protective regulations there are.

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The wind market is challenged in 2 imposing ways: (1) The government gives preferential treatment to Chinese manufacturers and developers and (2) there are still severe limitations on the Chinese grid’s ability to connect and intergrate new projects.

Chinese technology is getting better all the time but still faces high costs and quality concerns.

In financing, new market players face very low bids for the power they generate and, as with the solar sector, there are inadequate incentive policies and financing vehicles.

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On the regulatory front, wind faces confusing incentive policies, limited transparency and the same issues with enforcement so often found by others trying to do business in China.

Bioenergy market challenges begin with an unreliable biomass feedstock supply that varies with the many other mass human fluctuations in China’s rural regions. Part of this unreliability does not begin with China’s growers but with a failure of the government to enforce consistent purchase requirements.

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As with bioenergies worldwide, the most promising technologies remain unproven (and the most proven technologies are unsatisfactory, often causing as much GhG generation as they relieve.

Bioenergy financing is inadequate because their cost keeps them from competing with fossil fuels, especially because growers face significant up-front capital costs in transitioning to the most promising feedstocks.

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Bioenergy regulatory challenges are the familiar lack of consistency, transparency and high standards.

China has serious regulatory issues associated with its 3 major New Energy industries. The chapter deals with these issues at great length and there is simply no point in attempting to summarize them here because if they are relevant to any reader, they should be studied in the detail offered by the Renewable Energy chapter.

The chapter concludes with a discussion of the New Energy opportunities emerging in China. For each of the 3 major New Energies, it details opportunities for (1) solution adopters, (2) solution providers, (3) financial investors, (4) government regulators, and (5) other stakeholders.

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In the Solar Energies,
(1) Solution adopters can find financing partners, win power purchase agreements (PPAs) and find other ways to improve financing; they can help bring in technology advances and support improved quality and standards; and they can fund feasibility demonstration projects;
(2) Solution providers can develop downstream skills and technologies, diversify to lower cost options and drive more R&D, especially in solar energy products with potentially less GhGs and toxic by products in their production;
(3) Financial investors could use PPAs and innovative financing to offset high upfront costs and drive economies of scale to bring costs down, they could improve methods of return-on-investment (ROI) and cost-benefit analysis and they could promote transparency and equal access;
(4) Government regulators could set well-designed feed-in tariffs to drive growth, make PPAs more serviceable to developers, and improve monitoring, enforcement and regulation of grid operator compliance to ensure grid connection incentives; and
(5) Other stakeholders could create independent commissions to increase quality standards, forums for dialogue and the development of best-practices, teach market players how to improve sustainability in the entire value chain, and collaborate on guidelines and reporting.

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In Wind Power,
(1) Solution adopters could work with providers to improve project suitability, quality and sustainability, create industry associations to improvement of industry standards, and help establish competitive market mechanisms;
(2) Solution providers could work with local and national licensing entities to improve procedures, shift the cost analysis benchmark from the payback period to the return rate (IRR) over the 20-to-25 year project life cycle, and assist in the development of industry associations to facilitate both competition and cooperation where they are most productive;
(3) Financial investors could develop and drive innovative financing, develop teams of wind sector specialist, increase the understanding of the maturity and capacity of wind technology as well as its risks;
(4) Government regulators could establish required rates of generation and capacity targets over the each project’s 20-to-25 year life cycle, ensure PPAs are appropriate to tariffs and wind resources, increase transparency and open opportunity for project developers to choose not just the best domestically-manufactured turbine but the best turbine; and
(5) Other stakeholders could watch for gaps in knowledge and standards in comparison to that in other nations, support industry associations to do the same and guide regulators where necessary.

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In Bioenergy,
(1) Solution adopters could help providers accurately assess projects’ suitability and sustainability, help set and implement quality standards, and drive technology development to improve product quality;
(2) Solution providers could work with local stakeholders to accurately assess the quantity and suitability of biomass supplies, set government standards based on real-world experience and strengthen local industry associations;
(3) Financial investors could work with local governments to set and meet realistic bioenergy targets, write set-time contracts with local biomass providers to guarantee availability and price on feedstocks, and create collaborations between stakeholders to increase financial support the implementation of bioenergy projects;
(4) Government regulators could write compulsory national standards for biodiesel and bioelectricity, provide cultivation, distribution and conversion process information to growers based on local conditions, and strengthen local PPA enforcement with penalties for failure to meet terms; and
(5) Other stakeholders could identify gaps in the process and suggest solutions, organize collaboration on standards among key stakeholders, and work with the government to improve guidance and provide new rural players with needed training.

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The section on opportunities is the perfect way to close the chapter because it makes so vivid the one limitation of the Chinese system: It can drive growth, but – from financing to R&D to manufacturing to developing the market – China somehow lacks the instinct for innovation.

That is why the fight at Copenhagen to get the Chinese to be more transparent in exchange for providing them with new technologies was so intensely fought. If China can remain less than transparent, it can put Western technologies to use without paying for them; if the West can make them be more transparent, all this New Energy development could be a lot more expensive in China and a lot more profitable for the innovators.

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QUOTES
Sandy Butterfied, Principal Engineer, National Wind Technology Center at the National Renewable Energy Laboratory of the U.S. Department of Energy: “…There are 80 wind turbine manufacturers in China, 10 might be serious and some report that less than 5 of those will survive...But that is still a lot. There is a similar situation with blade manufacturing…I want to say no disparaging words about my Chinese colleagues in the wind industry. Some of them I am sure are not up to quality yet, but my exposure to most of them demonstrates that they know how to build high quality equipment and they are succeeding at it with several very well run companies.”